Panel Data - Memorial University of Newfoundland
Panel Data - Memorial University of Newfoundland
Panel Data - Memorial University of Newfoundland
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ONE PROBLEM: Even with the trick <strong>of</strong> using the within estimator, we still<br />
implicitly (even if no longer explicitly) include N-1 dummy variables in our<br />
model (not N, since we remove the intercept), so we use up N-1 degrees <strong>of</strong><br />
freedom.<br />
It might not be then the most efficient way to estimate the common slope<br />
ANOTHER ONE. By using deviations from the means, the procedure wipes<br />
out all the static variables, whose effects might be <strong>of</strong> interest<br />
In order to overcome this problem, we can consider the random effects/or error<br />
components model<br />
Principles <strong>of</strong> Econometrics, 3rd Edition<br />
Slide 15-36